When dealing with income producing properties in the Arizona Real Estate market, ideally the investor will want to quantify the inherent ‘VALUE’ of said property as a key factor in determining potential yields income property will bring.  One simple factor is often used in an attempt to assign a value to the income producing property, and that is the Gross Rent Multiplier (GRM) which is equal to the investment property Sales Price divided by Gross Rent.

GRM = Sales Price / Gross Rent

The beauty of the GRM lies in its simplicity and ease of use.  The GRM for a investment property may be calculated just like that – hence multiple properties may have their GRMs compared very quickly for an approximation of relative VALUE.  The problem with GRM also lies in its simplicity.  It does not take into account other factors such as additional operating expenses, vacancies, and other things associated with the investment property.  For a more detailed analysis of VALUE in investment properties, use the CAP RATE (Capitalization Rate):

CAP RATE = Net Operating Income (NOI) / VALUE

To truly understand exactly how CAP RATEs are determined, one must understand all the components of NOI.  Back to school, here we go:

CAPITALIZATION

Scheduled Gross Income (100% Occupancy)

-         Vacancies (% of Gross Income)

-         Credit Losses (% of Gross Income)

=        Effective (Adjusted) Gross Income (AGI)

-         Expenses

=        Net Operating Income (NOI)

-         Adjusted Debt Service (ADS)

=        CASHFLOW

/         Downpayment

=        Cash-on-Cash Return (x100)

Now that we have the basics out of the way, are you ready to take on a Phoenix Investment Property that will bring you positive cash flow through out these hard times? How do we know it will be a positive cash flow producing income property? Because due to bad loans from certain lending agencies, many have lost their homes due to foreclosure. That means, those people will not be qualified to buy a property in Arizona for some time leaving them with having to take on a lease.  This is where the Phoenix investor comes in. Buy a property for $40 to $60 cents on the dollar, lease it and gain your positive cash-flow.

Article written by: Angel Karchev with www.realvisioninvestor.com